The traditional way to capture audio is to pick a "Stereo Mix" or "What U Hear" recording device and record in a program like Sound Recorder or Audacity. However that relies on your sound card exposing that feature.
In Vista they introduced an API to capture your PC's sound output independent of any sound card support, but it seems few programs have added that feature. Does anyone know of a program that does it that runs on Windows 7? FRAPS does it but records video as well, which I don't want.